Policies in Bangladesh should prioritise safeguarding fiscal sustainability and strengthening macro-financial stability, while implementing comprehensive structural reforms over the medium term to enhance governance, create jobs and promote economic diversification, said the International Monetary Fund (IMF).
The IMF made the remarks as its Executive Board concluded the 2025 Article IV Consultation with Bangladesh.
Following the recent economic slowdown, the IMF projected Bangladesh’s GDP growth to rebound to 4.7 per cent in FY26 and FY27.
However, the economy faces mounting macro-financial challenges, including weak tax revenue and financial sector vulnerabilities, with significant downside risks stemming from delays in implementing bold fiscal and financial reforms.
Bangladesh’s economic growth slowed recently, while inflation remained elevated. GDP growth decelerated to 3.7 per cent in FY25 from 4.2 per cent in FY24 and 5.8 per cent in FY23, reflecting production delays during the 2024 uprising, a tighter policy mix and sluggish investment.
Headline inflation, while declining from double-digit levels in early FY25, remained elevated at 8.2 per cent year-on-year in October.
The tax revenue-to-GDP ratio fell sharply in FY25, although the fiscal deficit was contained due to under-execution of capital and social spending.
Foreign exchange reserves have begun to rebuild, supported by improvements in the current account.
With the implementation of policies to mobilise tax revenue and address financial sector vulnerabilities, the economy is expected to recover gradually over the medium term.
Growth is projected to rebound to 4.7 per cent in FY26 and gradually accelerate to around 6 per cent, while inflation is expected to remain elevated at 8.9 per cent in FY26 before moderating to around 6 per cent in FY27.
Risks to the outlook are tilted to the downside, mainly from delayed or inadequate policy action and potential reversals of exchange rate reform and fiscal discipline.
The IMF Executive Board acknowledged the interim authorities’ efforts to stabilise the economy following the 2024 uprising and ahead of upcoming national elections. However, Directors noted that Bangladesh continues to face mounting macroeconomic and financial challenges.
Weak revenue mobilisation, banking sector vulnerabilities, incomplete implementation of the new exchange rate framework, and elevated inflation are weighing on macroeconomic stability and growth prospects.
Directors observed uneven programme performance and emphasised that decisive and sustained policy actions, alongside bold structural reforms, are essential to restore macroeconomic stability and support long-term development goals.
The IMF Executive Board stressed that full ownership of the programme by the new administration will be critical, supported by early engagement with IMF staff and efforts to secure stakeholder buy-in.
Directors highlighted the need for ambitious fiscal reforms, urging authorities to implement bold tax policy measures, simplify the tax system, and strengthen tax administration and compliance to mobilize revenue.
They also recommended rationalising subsidies, prioritising growth-enhancing investments, enhancing social safety nets, and improving public financial and investment management to support inclusive development.
Strengthening the financial viability of energy state-owned enterprises (SOEs) was also highlighted.
Directors underscored the urgent need for a credible banking sector reform strategy aligned with international standards to restore banking sector stability.
This includes assessing undercapitalization, defining fiscal support, and implementing legally robust restructuring and resolution plans.
They also encouraged asset quality reviews for all systemic and state-owned banks, risk-based supervision, and stronger governance and balance sheet transparency.
Maintaining a tight policy mix is necessary to rebuild foreign reserves and reduce inflation. Directors emphasised full implementation of the exchange rate reform and greater flexibility, cautioning against unsecured liquidity injections into weak banks.
Monetary policy should remain appropriately tight until inflation is firmly on a downward path, while modernisation of the monetary policy framework should continue.
Comprehensive structural reforms are critical to unlocking Bangladesh’s economic potential and promoting inclusive growth as the country graduates from LDC status. Directors emphasised enhancing governance and transparency, strengthening anti-corruption and AML/CFT frameworks, and ensuring central bank autonomy.
They also supported policies for job creation, particularly for youth, and for export diversification. Capacity development and improvements in macroeconomic statistics were also highlighted as essential.
Continued reforms under the Resilience and Sustainability Facility (RSF) arrangement can help build climate resilience and mobilise climate finance.
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with member countries, typically every year.
A staff team visits the country, collects economic and financial information, and discusses economic developments and policies with officials. Upon return to headquarters, the staff prepares a report for Executive Board discussion.
The managing director, as chair of the board, summarises the board’s views, which are then transmitted to the country’s authorities.
